The Alternative Investment Funds Managers’ (AIFMs) Law, 56(I)/ 2013, aligns the Cyprus regulatory framework with various EU regulations on Alternative Investment Managers (AIMs).
Specifically, the Law identifies the following two Alternative Investment Funds Manager:
- The AIFMs that internally manage AIFs.
- The AIFMs that are appointed as external managers of AIFs.
AIFMs need to be licensed by the Cyprus Securities and Exchange Commission (CySEC) in order to operate in the Republic of Cyprus. Moreover, the AIFMs that operate in the Republic of Cyprus need to satisfy some general requirements such as authorisation, capital requirements, remuneration, conflict of interest, risk management, liquidity management and transparency.
It should be pointed out that AIFMs are licensed only if CySEC is satisfied that AIFMs:
- comply with the Law;
- have sufficient capital;
- are managed by individuals of good repute and sufficient experience;
- have shareholders with qualifying holdings who are suitable to guarantee the wise and prudent management;
- have a head office and registered office in Cyprus;
CySEC may grant full or partial authorisation, with certain restrictions on the investment strategies of the AIF which the AIFM is permitted to manage.
CySEC has to notify the Applicant of its decision, within three months after receiving the complete application. Note that this period can be extended if it is necessary.
The AIFM may start managing AIFs based on its authorisation as soon as its licence has been granted within one month of submitting information concerning the services it is going to offer.
The following table illustrates the capital requirements according to the type of AIFM and Portfolio. It should be underlined that the total portfolio value does not include AIF portfolios managed by AIFM under delegation. Furthermore, internally and externally managed AIF should have additional own funds or hold professional liability insurance in order to respond to any potential professional liability.
|AIFM||PORTFOLIO LESS THAN €250 MILLION||PORTFOLIO MORE THAN €250 MILLION|
|Internally Managed AIF||€300.000||Additional capital of 0.02% of the amount by which €250 million is exceeded with a maximum of €10 million.|
|Externally Managed AIF||€125.000||Additional capital of 0.02% of the amount by which €250 million is exceeded with a maximum of €10 million.|
The remuneration policies of an AIFM need to satisfy the following requirements such as:
- Promote wise, prudent and efficient risk management;
- Not encouraging risk taking that does not apply to the risk profiles, rules or instruments of incorporation of the AIFs they manage.
- Apply to those categories of staff whose professional activities influence the risk profiles of the AIFMs or the AIFs they manage.
- Be consistent with the business strategy, mission and values;
- Be occasionally reviewed and be subject to an annual independent review;
For more information about remuneration, requirements contact our investment and corporate lawyers.
Conflict of Interest
According to article 15 of the Law, AIFMs are responsible for identifying conflicts of interest between the following parties:
|AIFM, its managers, employees or any
individual indirectly or directly linked to the AIFM by control.
|AIF managed by the AIFM or its investors|
|AIF or its investors.||Another AIF and its investors.|
|AIF or its investors.||Another client of the AIFM.|
|AIF or its investors.||Undertaking Collective
Undertakings for Collective Investment in Transferable Securities (UCITS) managed by the AIFM or its investors.
|Client of the AIFM.||Another client of the AIFM.|
The risk management department of the AIFM must be operationally separated from the operating units of the AIFM. CySEC will review the isolation taking into account the size of the AIFM and its activities. Precisely, the AIFM needs to be able to prove that it has established well-developed procedures that facilitate the independent performance of risk management activities and that risk management process meets all the requirements.
The AIFM should employ an adequate liquidity management system and procedures for each AIF they manage, apart from unleveraged closed-ended AIFs, in order to be able to monitor the liquidity risk of the AIF and to ensure the liquidity profiles of the AIF’s investments comply with the relevant regulations. Moreover, the AIFM should conduct regular stress tests.
AIFMs or their branches authorised in the Republic of Cyprus have an ongoing duty to provide any related information and annual reports to investors and CySEC.
The legal team of Michael Chambers &Co. LLC is able to provide you the appropriate legal and administrative support. The operation of AIFMs requires proper legal guidance. Our lawyers will assist you in every part of the process so that to achieve your business and investment objectives. If you wish to talk to one of our lawyers, in absolute confidence, then please contact us on [email protected]